[House Report 105-356]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    105-356
_______________________________________________________________________


 
                 TAX TECHNICAL CORRECTIONS ACT OF 1997

                                _______
                                

October 29, 1997.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 2645]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2645) to make technical corrections related to the 
Taxpayer Relief Act of 1997 and certain other tax legislation, 
having considered the same, report favorably thereon with 
amendments and recommend that the bill as amended do pass.


                                CONTENTS

                                                                   Page
 I. Summary and Background............................................4
        A. Purpose and Summary...................................     4
        B. Background and Need for Legislation...................     4
        C. Legislative History...................................     4
II. Explanation of the Bill...........................................4
    Technical Corrections to the Taxpayer Relief Act of 1997..........4
        A. Amendments to Title I of the 1997 Act Relating to the 
            Child Credit.........................................     4
            1. Stacking rules for the child credit under the 
                limitations based on tax liability...............     4
            2. Treatment of a portion of the child credit as a 
                supplemental child credit........................     5
        B. Amendments to Title II of the 1997 Act Relating to 
            Education Incentives.................................     6
            1. Clarifications to HOPE and Lifetime Learning 
                credits..........................................     6
            2. Education IRAs....................................     8
            3. Treatment of cancellation of certain student loans    10
        C. Amendments to Title III of the 1997 Act Relating to 
            Savings Incentives...................................    10
            1. Conversions of IRAs into Roth IRAs................    10
            2. Penalty-free distributions from IRAs for education 
                expenses and purchase of first homes.............    12
            3. Limits based on modified adjusted gross income....    13
            4. Contribution limit to Roth IRAs...................    13
            5. Limitations for active participants in an IRA.....    14
        D. Amendments to Title III of the 1997 Act Relating to 
            Capital Gains........................................    15
            1. Individual capital gain rate reductions...........    15
            2. Rollover of gain from sale of qualified stock.....    17
            3. Exclusion of gain on the sale of a principal 
                residence owned and used less that two years.....    17
            4. Effective date of the exclusion of gain on the 
                sale of a principal residence....................    18
        E. Amendments to Title V of the 1997 Act Relating to 
            Estate and Gift Taxes................................    18
            1. Clarification of effective date for indexing of 
                generation-skipping exemption....................    18
            2. Coordination between unified credit and family-
                owned business exclusion.........................    19
            3. Clarification of businesses eligible for family-
                owned business exclusion.........................    21
            4. Clarification of interest on installment payment 
                of estate tax on holding companies...............    21
            5. Clarification on declaratory judgment jurisdiction 
                of U.S. Tax Court regarding installment payment 
                of estate tax....................................    22
            6. Clarification of rules governing revaluation of 
                gifts............................................    22
        F. Amendments to Title VII of the 1997 Act Relating to 
            Incentives for the District of Columbia..............    23
        G. Amendments to Title IX of the 1997 Act Relating to 
            Miscellaneous Provisions.............................    24
            1. Clarification of effect on certain transfers to 
                Highway Trust Fund...............................    24
            2. Clarification of Mass Transit Account portions of 
                highway motor fuels taxes........................    25
            3. Combined employment tax reporting demonstration 
                project..........................................    25
        H. Amendments to Title X of the 1997 Act Relating to 
            Revenue-Raising Provisions...........................    26
             1. Exemption from constructive sales rules for 
                certain debt position............................    26
             2. Definition of forward contract under constructive 
                sales rules......................................    27
             3. Treatment of mark-to-market gains of electing 
                traders..........................................    27
             4. Special effective date for constructive sale 
                rules............................................    28
             5. Treatment of certain corporate distributions.....    29
             6. Certain preferred stock treated as ``boot''--
                statute of limitations...........................    31
             7. Certain preferred stock treated as ``boot''--
                treatment of transferor..........................    31
             8. Establish IRS continuous levy and improve debt 
                collection.......................................    32
             9. Clarification regarding aviation gasoline excise 
                tax..............................................    32
            10. Clarification of requirement that registered fuel 
                terminals offer dyed fuel........................    33
            11. Clarification of provision expanding the 
                limitations on deductibility of premiums and 
                interest with respect to life insurance, 
                endowment and annuity contracts..................    33
            12. Clarification to the definition of modified 
                adjusted gross income for purposes of the earned 
                income credit phaseout...........................    35
        I. Amendments to Title XI of the 1997 Act Relating to 
            Foreign Provisions...................................    35
        J. Amendments to Title XII of the 1997 Act Relating to 
            Simplification Provisions............................    36
             1. Travel expenses of Federal employees 
                participating in a Federal criminal investigation    36
             2. Effective date for provisions relating to 
                electing large partnerships, partnership returns 
                required on magnetic media, and treatment of 
                partnership items of individual retirement 
                arrangements.....................................    37
        K. Amendments to Title XVI of the 1997 Act Relating to 
            Technical Corrections................................    38
             1. Application of requirements for SIMPLE IRAs in 
                the case of mergers and acquisitions.............    38
             2. Treatment of Indian tribal governments under 
                section 403(b)...................................    39
    Technical Corrections to Other Tax Legislation...................39
        A. Allow Deduction for Unused Employer Social Security 
            Credit...............................................    39
        B. Treatment of Certain Stapled REITs....................    40
III.Vote of the Committee............................................40

IV. Budget Effects of the Bill.......................................40
        A. Committee Estimates of Budgetary Effects..............    40
        B. Budget Authority and Tax Expenditures.................    40
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    41
 V. Other Matters to be Discussed Under the Rules of the House.......42
        A. Committee Oversight Findings and Recommendations......    42
        B. Summary of Findings and Recommendations of the 
            Committee on Government Reform and Oversight.........    42
        C. Constitutional Authority Statement....................    42
        D. Information Relating to Unfunded Mandates.............    42
        E. Applicability of House Rule XXI5(c)...................    42
VI. Changes in Existing Law Made by the Bill, as Reported............43

    The amendments (stated in terms of the page and line 
numbers of the introduced bill) are as follows:
    Page 3, strike line 4 and insert the following:
          32 (determined without regard to subsection (n)) for 
        the taxable year.
          The amount of the credit allowed under this 
        subsection shall not be treated as a credit allowed 
        under this subpart and shall reduce the amount of 
        credit otherwise allowable under subsection (a) without 
        regard to section 26(a).
    Page 5, strike lines 16, 17, and 18.
    Page 5, line 19, strike ``(2)'' and insert ``(1)''.
    Page 5, line 23, strike ``(3)'' and insert ``(2)''.
    Page 6, line 22, strike ``(4)'' and insert ``(3)''.
    Page 41, strike line 11 and all that follows through line 2 
on page 42 and insert the following:
    (a) Amendment Related to Section 901 of 1997 Act.--Section 
9603(c)(7) of the 1986 Code is amended--
          (1) by striking ``resulting from the amendments made 
        by'' and inserting ``(and transfers to the Mass Transit 
        Account) resulting from the amendments made by 
        subsections (a) and (b) of section 901 of'', and
          (2) by inserting before the period ``and deposits in 
        the Highway Trust Fund (and transfers to the Mass 
        Transit Account) shall be treated as made when they 
        would have been required to be made without regard to 
        section 901(e) of the Taxpayer Relief Act of 1997''.
    Page 47, strike lines 1 through 8 and insert the following:
          (3) Subsection (c) of section 6421 of the 1986 Code 
        is amended--
                  (A) by striking ``(2)(A)'' and inserting 
                ``(2)'', and
                  (B) by adding at the end of the following 
                sentence: ``Subsection (a) shall not apply to 
                gasoline to which this subsection applies.''
    Page 60, after line 12, insert the following new paragraph:
    (3) Subsections (a) and (b) of section 6421 of the 1986 
Code are each amended by striking ``subsection (j)'' and 
inserting ``subsection (i)''.

                       I. SUMMARY AND BACKGROUND

                         A. Purpose and Summary

    H.R. 2645 provides technical and clerical corrections to 
recent tax legislation, primarily the Taxpayer Relief Act of 
1997 (``1997 Act''). The clerical provisions are not discussed 
in the explanation (Part II). The technical corrections 
generally are effective as if included in the original 
provisions to which they relate.

                 B. Background and Need for Legislation

    The bill provides technical and clerical corrections to 
recent tax legislation that are necessary to reflect the intent 
of the 1997 Act and other tax legislation. The Committee worked 
closely with the Treasury Department to accomplish needed and 
timely technical corrections, which are reflected in the 
Committee bill as reported. Technical and clerical amendments 
were made pursuant to staff drafting authority.

                         C. Legislative History

    H.R. 2645 was introduced by Chairman Archer and Mr. Rangel 
on October 9, 1997, and was considered by the Committee in a 
markup on October 9, 1997. The bill was ordered favorably 
reported, without amendment, by a voice vote on October 9, 
1997, with a quorum present.

                      II. EXPLANATION OF THE BILL

        TECHNICAL CORRECTIONS TO THE TAXPAYER RELIEF ACT OF 1997

 A. Amendments to Title I of the 1997 Act Relating to the Child Credit

1. Stacking rules for the child credit under the limitations based on 
        tax liability (sec. 3(a) of the bill, sec. 101(a) of the 1997 
        Act, and sec. 24 of the Code)

                              Present Law

    Present law provides a $500 ($400 for taxable year 1998) 
tax credit for each qualifying child under the age of 17. A 
qualifying child is defined as an individual for whom the 
taxpayer can claim a dependency exemption and who is a son or 
daughter of the taxpayer (or a descendent of either), a stepson 
or stepdaughter of the taxpayer or an eligible foster child of 
the taxpayer. For taxpayers with modified adjusted gross income 
in excess of certain thresholds, the allowable child credit is 
phased out. The length of the phase-out range is affected by 
the number of the taxpayer's qualifying children.
    Generally, the maximum amount of a taxpayer's child credit 
for each taxable year is limited to the excess of the 
taxpayer's regular tax liability over the taxpayer's tentative 
minimum tax liability (determined without regard to the 
alternative minimum foreign tax credit). In the case of a 
taxpayer with three or more qualifying children, the maximum 
amount of the taxpayer's child credit for each taxable year is 
limited to the greater of: (1) the amount computed under the 
rule described above, or (2) an amount equal to the excess of 
the sum of the taxpayer's regular income tax liability and the 
employee share of FICA taxes (and one-half of the taxpayer's 
SECA tax liability, if applicable) reduced by the earned income 
credit. In the case of a taxpayer with three or more qualifying 
children, the excess of the amount allowed in (2) over the 
amount computed in (1) is a refundable credit.
    Nonrefundable credits may not be used to reduce tax 
liability below a taxpayer's tentative minimum tax. Certain 
credits not used as result of this rule may be carried over to 
other taxable years, while others may not. Special stacking 
rules apply in determining which nonrefundable credits are used 
in the current year. Generally, the stacking rules require that 
nonrefundable personal credits be considered first,\1\ followed 
by other credits, business credits, and the investment tax 
credit. Refundable credits, which are not limited by the 
minimum tax, are not stacked until after the nonrefundable 
credits.
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    \1\ It is understood that there is also a stacking rule under which 
the income tax liability limitation applies between the nonrefundable 
personal credits, including the nonrefundable portion of the child 
credit. Generally, the nonrefundable portion of the child credit and 
the other nonrefundable personal credits which do not provide a 
carryforward are grouped together and stacked first followed by the 
nonrefundable personal credits which provide a carryforward for 
purposes of applying the income tax liability limitation. Therefore, if 
the sum of the taxpayer's nonrefundable credits exceeds the difference 
between the taxpayer's regular income tax liability and the taxpayer's 
tentative minimum tax (determined without regard to the alternative 
minimum foreign tax credit) then the nonrefundable personal credits 
which do not provide a carryforward would be applied to reduce the 
income tax liability for that year first and any excess credits which 
allow a carryforward would be available to reduce the taxpayer's income 
tax liability in future years.
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                        Explanation of Provision

    The bill clarifies the application of the income tax 
liability limitation to the refundable portion of the child 
credit by treating the refundable portion of the child credit 
in the same way as the other refundable credits. Specifically, 
after all the other credits are applied according to the 
stacking rules of the income tax limitation then the refundable 
credits are applied first to reduce the taxpayer's tax 
liability for the year and then to provide a credit in excess 
of income tax liability for the year.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1997.

2. Treatment of a portion of the child credit as a supplemental child 
        credit (sec. 3(b) of the bill, sec. 101(b) of the 1997 Act, and 
        sec. 32(m) of the Code)

                              Present Law

    A portion of the child credit may be treated as a 
supplemental child credit. The amount of the supplemental child 
credit, if any, equals the excess of (1) $500 times the number 
of qualifying children up to the excess of the taxpayer's 
income tax liability (net of applicable credits other than the 
earned income credit) over the taxpayer's alternative minimum 
tax liability (determined without regard to the alternative 
minimum foreign tax credit) over (2) the sum of the taxpayer's 
regular income tax liability (net of applicable credits other 
than the earned income credit) and the employee share of FICA 
taxes (and one-half of the taxpayer's SECA tax liability, if 
applicable) reduced by any earned income credit amount. The 
supplemental child credit is treated as provided under the 
earned income credit and the child credit amount is reduced by 
the amount of the supplemental child credit.

                        Explanation of Provision

    The bill clarifies that the treatment of a portion of the 
child credit as a supplemental child credit under the earned 
income credit (sec. 32) and the offsetting reduction of the 
child credit (sec. 24) does not affect any other credit 
available to the taxpayer. It also clarifies that the earned 
income credit rules (e.g., the phaseout of the earned income 
credit) generally do not apply to the supplemental child 
credit.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1997.

    B. Amendments to Title II of the 1997 Act Relating to Education 
                               Incentives

1. Clarifications to HOPE and Lifetime Learning credits (sec. 4(a) of 
        the bill, sec. 201 of the 1997 Act, and secs. 25A and 6050S of 
        the Code)

                              Present Law

    Individual taxpayers are allowed to claim a nonrefundable 
HOPE credit against Federal income taxes up to $1,500 per 
student for qualified tuition and fees paid during the year on 
behalf of a student (i.e., the taxpayer, the taxpayer's spouse, 
or a dependent of the taxpayer) who is enrolled in a post-
secondary degree or certificate program at an eligible post-
secondary institution on at least a half-time basis. The HOPE 
credit is available only for the first two years of a student's 
post-secondary education. The credit rate is 100 percent of the 
first $1,000 of qualified tuition and fees and 50 percent on 
the next $1,000 of qualified tuition and fees. The HOPE credit 
amount that a taxpayer may otherwise claim is phased out for 
taxpayers with modified adjusted gross income (AGI) between 
$40,000 and $50,000 ($80,000 and $100,000 for joint returns). 
For taxable years beginning after 2001, the $1,500 maximum HOPE 
credit amount and the AGI phase-out range will be indexed for 
inflation. The HOPE credit is available for expenses paid after 
December 31, 1997, for education furnished in academic periods 
beginning after such date.
    If a student is not eligible for the HOPE credit (or in 
lieu of claiming a HOPE credit with respect to a student), 
individual taxpayers are allowed to claim a nonrefundable 
Lifetime Learning credit against Federal income taxes equal to 
20 percent of qualified tuition and fees paid during the 
taxable year on behalf of the taxpayer, the taxpayer's spouse, 
or a dependent. In contrast to the HOPE credit, the student 
need not be enrolled on at least a half-time basis in order to 
be eligible for the Lifetime Learning credit, which is 
available for an unlimited number of years of post-secondary 
training. For expenses paid before January 1, 2003, up to 
$5,000 of qualified tuition and fees per taxpayer return will 
be eligible for the Lifetime Learning credit (i.e., the maximum 
credit per taxpayer return will be $1,000). For expenses paid 
after December 31, 2002, up to $10,000 of qualified tuition and 
fees per taxpayer return will be eligible for the Lifetime 
Learning credit (i.e., the maximum credit per taxpayer return 
will be $2,000). The Lifetime Learning credit amount that a 
taxpayer may otherwise claim is phased out over the same 
modified AGI phase-out range as applies for purposes of the 
HOPE credit. The Lifetime Learning credit is available for 
expenses paid after June 30, 1998, for education furnished in 
academic periods beginning after such date.
    Section 6050S provides that certain educational 
institutions and other taxpayers engaged in a trade or business 
must file information returns with the IRS and certain 
individual taxpayers, as required by regulations prescribed by 
the Secretary of the Treasury, containing information on 
individuals who made payments for qualified tuition and related 
expenses or to whom reimbursements or refunds were made of such 
expenses.

                        Explanation of Provision

    The bill clarifies that the maximum HOPE credit amount will 
be indexed for inflation occurring after the year 2000, by 
increasing the cap on qualified tuition and related expenses 
subject to the 100-percent credit rate and the cap on such 
tuition and related expenses subject to the 50-percent credit 
rate, and both caps will be rounded down to the closest 
multiple of $100.\2\ The first taxable year for which the 
inflation adjustment may be made to increase the caps on 
qualified tuition and related expenses will be 2002.
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    \2\ Some printed versions of the 1997 Act incorrectly provided that 
the caps will be rounded down to the closest multiple of $1,000.
---------------------------------------------------------------------------
    In addition, the bill clarifies that, under section 6050S, 
information returns containing information with respect to 
qualified tuition and fees must be filed by a person that is 
not an eligible educational institution only if such person is 
engaged in a trade or business of making payments to any 
individual under an insurance arrangement as reimbursements or 
refunds (or similar payments) of qualified tuition and related 
expenses. As under present law, section 6050S also will require 
the filing of information returns by persons engaged in a trade 
or business if, in the course of such trade or business, the 
person receives from any individual interest aggregating $600 
or more for any calendar year on one or more qualified 
education loans.

                             Effective Date

    The provision is effective as if included in the 1997 Act, 
i.e., for expenses paid after December 31, 1997, for education 
furnished in academic periods beginning after such date.

2. Education IRAs (sec. 4(c) of the bill, sec. 213 of the 1997 Act, and 
        sec. 530 of the Code)

                              Present Law

    Section 530 provides that taxpayers may establish 
``education IRAs,'' meaning certain trusts or custodial 
accounts created exclusively for the purpose of paying 
qualified higher education expenses of a named beneficiary. 
Annual contributions to education IRAs may not exceed $500 per 
designated beneficiary, and may not be made after the 
designated beneficiary reaches age 18. Contributions to an 
education IRA may not be made by certain high-income 
taxpayers--i.e., the contribution limit is phased out for 
taxpayers with modified adjusted gross income between $95,000 
and $110,000 ($150,000 and $160,000 for taxpayers filing joint 
returns). No contribution may be made to an education IRA 
during any year in which any contributions are made by anyone 
to a qualified State tuition program on behalf of the same 
beneficiary.
    Until a distribution is made from an education IRA, 
earnings on contributions to the account generally are not 
subject to tax.\3\ In addition, distributions from an education 
IRA are excludable from gross income to the extent that the 
distribution does not exceed qualified higher education 
expenses incurred by the beneficiary during the year the 
distribution is made (provided that a HOPE credit or Lifetime 
Learning credit is not claimed with respect to the beneficiary 
for the same taxable year). The earnings portion of an 
education IRA distribution not used to pay qualified higher 
education expenses is includible in the gross income of the 
distributee and generally is subject to an additional 10-
percent tax.\4\ However, the additional 10-percent tax does not 
apply if a distribution is made of excess contributions above 
the $500 limit (and any earnings attributable to such excess 
contributions) if the distribution is made on or before the 
date that a return is required to be filed (including 
extensions of time) by the contributor for the year in which 
the excess contribution was made. In addition, section 530 
allows tax-free rollovers of account balances from an education 
IRA benefiting one family member to an education IRA benefiting 
another family member. Section 530 is effective for taxable 
years beginning after December 31, 1997.
---------------------------------------------------------------------------
    \3\ However, education IRAs are subject to the unrelated business 
income tax (``UBIT'') imposed by section 511.
    \4\ This 10-percent additional tax does not apply if a distribution 
from an education IRA is made on account of the death, disability, or 
scholarship received by the designated beneficiary.
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                        Explanation of Provision

    Consistent with the legislative history to the 1997 Act, 
any balance remaining in an education IRA will be deemed to be 
distributed within 30 days after the date that the named 
beneficiary reaches age 30 (or, if earlier, within 30 days of 
the date that the beneficiary dies).
    The bill further provides that the additional 10-percent 
tax will not apply to the distribution of any contribution to 
an education IRA made during a taxable year if such 
distribution is made on or before the date that a return is 
required to be filed (including extensions of time) by the 
beneficiary for the taxable year during which the contribution 
was made (or, if the beneficiary is not required to file such a 
return, April 15th of the year following the taxable year 
during which the contribution was made).
    The bill also clarifies that, under rules contained in 
present-law section 72, distributions from education IRAs are 
treated as representing a pro-rata share of the principal 
(i.e., contributions) and accumulated earnings in the 
account.\5\
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    \5\ For example, if an education IRA has a total balance of 
$10,000, of which $4,000 represents principal (i.e., contributions) and 
$6,000 represents earnings, and if a distribution of $2,000 is made 
from such an account, then $800 of that distribution will be treated as 
a return of principal (which under no event is includible in the gross 
income of the distributee) and $1,200 of the distribution will be 
treated as accumulated earnings. In such a case, if qualified higher 
education expenses of the beneficiary during the year of the 
distribution are a least equal to the $2,000 total amount of the 
distribution (i.e., principal plus earnings), then the entire earnings 
portion of the distribution will be excludible under section 530, 
provided that a Hope credit or Lifetime Learning credit is not claimed 
for that same taxable year on behalf of the beneficiary. If however, 
the qualified higher education expenses of the beneficiary for the 
taxable year are less than the total amount of the distribution, then 
only a portion of the earnings will be excludable from gross income 
under section 530. Thus, in the example discussed above, if the 
beneficiary incurs only $1,500 of qualified higher education expenses 
in the year that a $2,000 distribution is made, then only $900 of the 
earnings will be excludable from gross income under section 530 (i.e., 
an exclusion will be provided for the pro-rate portion of the earnings, 
based on the ratio that the $1,500 of qualified higher education 
expenses bears to the $2,000 distribution) and the remaining $300 of 
the earnings portion of the distribution will be includible in the 
distributee's gross income.
---------------------------------------------------------------------------
    In addition, because the 1997 Act allows taxpayers to 
redeem U.S. Savings Bonds and be eligible for the exclusion 
under present-law section 135 (as if the proceeds were used to 
pay qualified higher education expenses) provided the proceeds 
from the redemption are contributed to an education IRA (or to 
a qualified State tuition program defined under section 529) on 
behalf of the taxpayer, the taxpayer's spouse, or a dependent, 
the provision conforms the definition of ``eligible educational 
institution'' under section 135 to the broader definition of 
that term under present-law section 530 (and section 529). 
Thus, for purposes of section 135, as under present-law 
sections 529 and 530, the term ``eligible educational 
institution'' is defined as an institution which (1) is 
described in section 481 of the Higher Education Act of 1965 
(20 U.S.C. 1088) and (2) is eligible to participate in 
Department of Education student aid programs.

                             Effective Date

    The provision is effective as if included in the 1997 Act, 
i.e., for taxable years beginning after December 31, 1997.

3. Treatment of cancellation of certain student loans (sec. 4(e) of the 
        bill, sec. 225 of the 1997 Act, and sec. 108(f) of the Code)

                              Present Law

    Under present law, an individual's gross income does not 
include forgiveness of loans made by tax-exempt educational 
organizations if the proceeds of such loans are used to pay 
costs of attendance at an educational institution or to 
refinance outstanding student loans and the student is not 
employed by the lender organization. The exclusion applies only 
if the forgiveness is contingent on the student's working for a 
certain period of time in certain professions for any of a 
broad class of employers. In addition, the student's work must 
fulfill a public service requirement.

                        Explanation of Provision

    The bill clarifies that the forgiveness of loans made by 
tax-exempt educational organizations and other tax-exempt 
organizations to refinance any existing student loan may be 
excludable from gross income. However, the bill requires that 
such refinancing loans must be made pursuant to a program of 
the refinancing organization (e.g., school or private 
foundation) that requires the student to fulfill a public 
service work requirement.

                             Effective Date

    The provision is effective as of August 5, 1997, the date 
of enactment of the 1997 Act.

    C. Amendments to Title III of the 1997 Act Relating to Savings 
                               Incentives

1. Conversions of IRAs into Roth IRAs (sec. 5(b) of the bill, sec. 302 
        of the 1997 Act and secs. 408A and 72(t) of the Code)

                              Present Law

    A taxpayer with adjusted gross income of less than $100,000 
may convert a present-law deductible or nondeductible IRA into 
a Roth IRA at any time. The amount converted is includible in 
income in the year of the conversion, except that if the 
conversion occurs in 1998, the amount converted is includible 
in income ratably over the 4-year period beginning with the 
year in which the conversion occurs.\6\ The 10-percent tax on 
early withdrawals does not apply to conversions of IRAs into 
Roth IRAs. The 5-year holding period for converted amounts 
begins from the year of the conversion.
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    \6\ If the conversion is accomplished by means of a withdrawal and 
a rollover into a Roth IRA, the 4-year rule applies if the withdrawal 
is made during 1998 and the rollover occurs within 60 days of the 
withdrawal. In such a case, the 4-year period begins with the year in 
which the withdrawal was made. For purposes of this discussion, such 
coversions are treated as occurring in 1998.
---------------------------------------------------------------------------
    Present law does not contain a specific rule addressing 
what happens if an individual dies during the 4-year spread 
period for 1998 conversions.

                        Explanation of Provision

Distributions of converted amounts within 5 years

    The bill modifies the rules relating to conversions of IRAs 
into Roth IRAs in order to prevent taxpayers from receiving 
premature distributions from a Roth conversion IRA (i.e., 
before the lapse of 5 years) while retaining the benefits of 4-
year income averaging and the nonpayment of the early 
withdrawal tax.
    Under the bill, if converted amounts are withdrawn within 
the 5-year period beginning with the year of the conversion, 
then, to the extent attributable to amounts that were 
includible in income due to the conversion, the amount 
withdrawn is subject to (1) the 10-percent early withdrawal 
tax,\7\ and (2) in the case of conversions to which the 4-year 
income inclusion rule applies, an additional 10-percent tax.\8\ 
Any withdrawal from a Roth IRA which contains converted amounts 
(called a ``Roth Conversion IRA'') within the 5-year period 
beginning with the year of the conversion is deemed to come 
first from the amounts that were includible in income as a 
result of the conversion.
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    \7\ The otherwise available exceptions to the early withdrawal tax, 
e.g., for distributions after age 59-\1/2\, apply.
    \8\ This additional tax is intended to recapture the benefit of 
deferring the income inclusion of the converted amounts. The converted 
amounts are still includible in income under the 4-year rule; that is, 
there is no acceleration of the income inclusion.
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    To assist in applying these rules, it is anticipated that 
appropriate forms will be developed to clearly differentiate 
Roth Conversion IRAs from other Roth IRAs and, for taxpayers 
who make conversions in more than one year, to differentiate 
Roth Conversion IRAs for different years so that taxpayers will 
be able to easily maintain separate IRAs for conversion amounts 
for each year in which a conversion is made and to facilitate 
reporting with respect to such IRAs by trustees and custodians.
    Special rules apply in the event that separate Roth IRAs 
are not maintained. In the case of a Roth IRA which contains 
conversion contributions and other contributions, or conversion 
contributions from more than one year, the 5-year period begins 
with the most recent taxable year for which a conversion 
contribution was made.\9\ For purposes of determining the 
amount of a withdrawal attributable to amounts includible in 
income due to a conversion, all Roth IRAs with the same 5-year 
holding period are aggregated.
---------------------------------------------------------------------------
    \9\ This same rule applies for purposes of determining whether a 
distribution from a Roth IRA is a qualified distribution.
---------------------------------------------------------------------------
    In order to assist individuals who erroneously convert IRAs 
into Roth IRAs or otherwise wish to change the nature of an IRA 
contribution, contributions to an IRA (and earnings thereon) 
may be transferred from any IRA to another IRA by the due date 
for the taxpayer's return for the year of the contribution 
(including extensions). Any such transferred contributions will 
be treated as if contributed to the transferee IRA (and not to 
the transferor IRA).
    The following example illustrates the application of the 
proposed rules.
          Example: Taxpayer A has a nondeductible IRA with a 
        value of $100 (and no other IRAs). The $100 consists of 
        $75 of contributions and $25 of earnings. A converts 
        the IRA into a Roth IRA in 1998. As a result of the 
        conversion, $25 is includible in income ratably over 4 
        years ($6.25 per year). The 10-percent early withdrawal 
        tax does not apply to the conversion. (It is 
        anticipated that when A opens the account, it will be 
        designated as a 1998 Roth Conversion IRA.) At the 
        beginning of 1999, the value of the account is $110, 
        and A makes a withdrawal of $45. $25 of the withdrawal 
        is treated as attributable entirely to amounts that 
        were includible in income due to the conversion. Upon 
        withdrawal, the $25 is not includible in income, nor is 
        the 4-year income inclusionaffected. However, the $25 
is subject to the 10-percent tax on early withdrawals (unless an 
exception applies) and an additional 10-percent tax to recapture the 
benefit of the 4-year income inclusion. The remaining $20 of the 
distribution is not includible in income nor subject to the early 
withdrawal tax because it is considered as a return of contributions 
under the ordering rule generally applicable to Roth IRAs. Subsequent 
withdrawals would be subject to the ordering rule generally applicable 
to Roth IRAs.

Effect of death on 4-year spread

    Under the bill, in general, any amounts remaining to be 
included in income as a result of a 1998 conversion would be 
includible in income on the final return of the taxpayer. If 
the surviving spouse is the beneficiary of the Roth IRA, the 
spouse could continue the deferral by including the remaining 
amounts in his or her income over the remainder of the 4-year 
period.

                             Effective Date

    The provision is effective as if included in the 1997 Act, 
i.e., for taxable years beginning after December 31, 1997.

2. Penalty-free distributions for education expenses and purchase of 
        first homes (sec. 5(c) of the bill, secs. 203 and 303 of the 
        1997 Act, and sec. 402 of the Code)

                              Present Law

    The 10-percent early withdrawal tax does not apply to 
distributions from an IRA if the distribution is for first-time 
homebuyer expenses, subject to a $10,000 life-time cap, or for 
higher education expenses. These exceptions do not apply to 
distributions from employer-sponsored retirement plans. A 
distribution from an employer-sponsored retirement plan that is 
an ``eligible rollover distribution'' may be rolled over to an 
IRA. The term ``eligible rollover distribution'' means any 
distribution to an employee of all or a portion or the balance 
to the credit of the employee in a qualified trust. 
Distributions from cash or deferred arrangements made on 
account of hardship are eligible rollover distributions. An 
eligible rollover distribution which is not transferred 
directly to another retirement plan or an IRA is subject to 20-
percent withholding on the distribution.

                        Explanation of Provision

    Under present law, participants in employer-sponsored 
retirement plans can avoid the early withdrawal tax applicable 
to such plans by rolling over hardship distributions to an IRA 
and withdrawing the funds from the IRA. The bill modifies the 
rules relating to the ability to roll over hardship 
distributions from employer-sponsored retirement plans to an 
IRA in order to prevent the avoidance of the 10-percent early 
withdrawal tax. The bill provides that distributions from cash 
or deferred arrangements made on account of hardship of the 
employee are not eligible rollover distributions and may not be 
rolled over to any IRA. Such distributions would not be subject 
to the 20-percent withholding applicable to eligible rollover 
distributions.

                             Effective Date

    The provision is effective as if included in the 1997 Act, 
i.e., for taxable years beginning after December 31, 1997.

3. Limits based on modified adjusted gross income (sec. 5(b) of the 
        bill, sec. 302(a) of the 1997 Act and sec. 72(t) of the Code)

                              Present Law

    The $2,000 Roth IRA maximum contribution limit is phased 
out for individual taxpayers with adjusted gross income 
(``AGI'') between $95,000 and $110,000 and for married 
taxpayers filing a joint return with AGI between $150,000 and 
$160,000. The maximum deductible IRA contribution is phased out 
between $0 and $10,000 of AGI in the case of married couples 
filing a separate return.

                        Explanation of Provision

    The bill clarifies the phase-out range for the Roth IRA 
maximum contribution limit for a married individual filing a 
separate return and conforms it to the range for deductible IRA 
contributions. Under the bill, the phase-out range for married 
individuals filing a separate return is $0 to $10,000 of AGI.

                             Effective Date

    The provision is effective as if included in the 1997 Act, 
i.e., for taxable years beginning after December 31, 1997.

4. Contribution limit to Roth IRAs (sec. 5(b) of the bill, sec. 302 of 
        the 1997 Act, and sec. 408A(c) of the Code)

                              Present Law

    An individual who is an active participant in an employer-
sponsored plan may deduct annual IRA contributions up to the 
lesser of $2,000 or 100 percent of compensation if the 
individual's adjusted gross income (``AGI'') does not exceed 
certain limits. For 1998, the limit is phased-out over the 
following ranges of AGI: $30,000 to $40,000 in the case of a 
single taxpayer and $50,000 to $60,000 in the case of married 
taxpayers. An individual who is not an active participant in an 
employer-sponsored retirement plan (and whose spouse is not an 
active participant) may deduct IRA contributions up to the 
limits described above without limitation based on income. An 
individual who is not an active participant in an employer-
sponsored retirement plan (and whose spouse is such an active 
participant) may deduct IRA contributions up to the limits 
described above if the AGI of the such individuals filing a 
joint return does not exceed certain limits. The limit is 
phased for out for such individuals with AGI between $150,000 
and $160,000.
    An individual may make nondeductible contributions up to 
the lesser of $2,000 or 100 percent of compensation to a Roth 
IRA if the individual's AGI does not exceed certain limits. An 
individual may make nondeductible contributions to an IRA to 
the extent the individual does not or cannot make deductible 
contributions to an IRA or contributions to a Roth IRA. 
Contributions to all an individual's IRAs for a taxable year 
may not exceed $2,000.

                        Explanation of Provision

    The bill clarifies the intent of the Act that an individual 
may contribute up to $2,000 a year to all the individual's 
IRAs. Thus, for example, suppose an individual is not eligible 
to make deductible IRA contributions because of the phase-out 
limits, and is eligible to make a $1,000 Roth IRA contribution. 
The individual could contribute $1,000 to the Roth IRA and 
$1,000 to anondeductible IRA.

                             Effective Date

    The provision is effective as if included in the 1997 Act, 
i.e., for taxable years beginning after December 31, 1997.

5. Limitations for active participation in an IRA (sec. 5(a) of the 
        bill, sec. 301(b) of the 1997 Act, and sec. 219(g) of the Code)

                              Present Law

    Under present law, if a married individual (filing a joint 
return) is an active participant in an employer-sponsored 
retirement plan, the $2,000 IRA deduction limit is phased out 
over the following levels of adjusted gross income (``AGI''):

                                                              In dollars
Taxable years beginning in:
    1997................................................  $40,000-50,000
    1998................................................   50,000-60,000
    1999................................................   51,000-61,000
    2000................................................   52,000-62,000
    2001................................................   53,000-63,000
    2002................................................   54,000-64,000
    2003................................................   60,000-70,000
    2004................................................   65,000-75,000
    2005................................................   70,000-80,000
    2006................................................   75,000-85,000
    2007................................................  80,000-100,000

An individual is not considered an active participant in an 
employer-sponsored retirement plan merely because the 
individual's spouse is an active participant. The 2,000 maximum 
deductible IRA contribution for an individual who is not an 
active participant, but whose spouse is, is phased out for 
taxpayers with AGI between 150,000 and 160,000.

                        Explanation of Provision

    The bill clarifies the intent of the Act relating to the 
AGI phase-out ranges for married individuals who are active 
participants in employer-sponsored plans and the AGI phase-out 
range for spouses of such active participants as described 
above.

                             Effective Date

    The provision is effective as if included in the 1997 Act, 
i.e., for taxable years beginning after December 31, 1997.

  D. Amendments to Title III of the 1997 Act Relating to Capital Gains

1. Individual capital gains rate reductions (sec. 5(d) of the bill, 
        sec. 311 of the 1997 Act, and sec. 1(h) of the Code)

                              Present Law

    The 1997 Act provided lower capital gains rates for 
individuals. Generally, the 1997 Act reduced the maximum rate 
on the adjusted net capital gain of an individual from 28 
percent to 20 percent and provided a 10-percent rate for the 
adjusted net capital gain otherwise taxed at a 15-percent rate. 
The ``adjusted net capital gain'' means the net capital gain 
determined without regard to certain gain for which the 1997 
Act provided a higher maximum rate of tax. The 1997 Act 
generally retained a 28-percent maximum rate for the long-term 
capital gain from collectibles, certain long-term capital gain 
included in income from the sale of small business stock, and 
the net capital gain determined by including all capital gains 
and losses properly taken into account after July 28, 1997, 
from property held more than one year but not more than 18 
months and all capital gains and losses properly taken into 
account for the portion of the taxable year before May 7, 1997. 
In addition, the 1997 Act provided a maximum rate of 25 percent 
for the long-term capital gain attributable to real estate 
depreciation (``unrecaptured section 1250 gain'').
    The amounts taxed at the 28- and 25-percent rates may not 
exceed the individual's net capital gain and also are reduced 
by amounts otherwise taxed at a 15-percent rate.
    Under the provisions of the 1997 Act, net short-term 
capital losses and long-term capital loss carryovers reduce the 
amount of adjusted net capital gain before reducing amounts 
taxed at the maximum 25- and 28-percent rates.
    The 1997 Act failed to coordinate the new multiple holding 
periods with certain provisions of the Code.

                        Explanation of Provision

    Under the bill, the ``adjusted net capital gain'' of an 
individual is the net capital gain reduced (but not below zero) 
by the sum of the 28-percent rate gain and the unrecaptured 
section 1250 gain.
    ``28-percent rate gain'' means the amount of net gain 
attributable to collectibles gains and losses, an amount of 
gain equal to the gain excluded from gross income on the sale 
of certain small business stock under section 1202,\10\ long-
term capital gains and losses properly taken into account after 
July 28, 1997, from property held more than one year but not 
more than 18 months, the net short-term capital loss for the 
taxable year and the long-term capital loss carryover to the 
taxable year. Long-term capital gains and losses properly taken 
into account before May 7, 1997, also are included in computing 
28-percent rate gain.
---------------------------------------------------------------------------
    \10\ For example, assume an individual has $300,000 gain from the 
sale of qualified stock in a small business corporation and $120,000 of 
the gain (50 percent of $240,000) is excluded from gross income under 
section 1202, as limited by section 1202(b). The $180,000 of gain 
included in gross income is included in the computation of net capital 
gain, and $120,000 of that gain is taken into account in computing 28-
percent rate gain. The maximum effective regular tax rate on the 
$240,000 of gain to which the 50-percent section 1202 exclusion applies 
is 14 percent and the maximum rate on the remaining $60,000 of gain is 
20 percent.
---------------------------------------------------------------------------
    ``Unrecaptured section 1250 gain'' means the amount of 
long-term capital gain (not otherwise treated as ordinary 
income) which would be treated as ordinary income if section 
1250 recapture applied to all depreciation (rather than only to 
depreciation in excess of straight-line depreciation) from 
property held more than 18 months (one year for amounts 
properly taken into account after May 6, 1997, and before July 
29, 1997).\11\ The unrecaptured section 1250 depreciation is 
reduced (but not below zero) by the excess (if any) of amount 
of losses taken into account in computing 28-percent gain over 
the amount of gains taken into account in computing 28-percent 
rate gain.
---------------------------------------------------------------------------
    \11\ In the case of a disposition of a partnership interest held 
more than 18 months, the amount of the individual's long-term capital 
gain which would be treated as ordinary income under section 751(a) if 
section 1250 applied to all depreciation, will be taken into account in 
computing unrecaptured section 1250 gain.
---------------------------------------------------------------------------
    The bill contains several conforming amendments to co-
ordinate the multiple holding periods with other provisions of 
the Code. Inherited property (sec. 1223 (11) and (12)) and 
certain patents (sec. 1235) are deemed to have a holding period 
of more than 18 months, allowing the 10- and 20-percent rates 
to apply. The bill clarifies that the amount treated as long-
term capital gain or loss on a section 1256 contract is treated 
as attributable to property held for more than 18 months. Rules 
similar to the short sale holding period rules of section 1233 
(b) and (d) and the holding period rules of section 1092(f) 
will apply where the applicable property is held more than 1 
year but not more than 18 months. Amounts treated as ordinary 
income by reason of section 1231(c) will be allocated among 
categories of net section 1231 gain in accordance with IRS 
forms or regulations.
    The bill reorders the rate structure under sections 1(h)(1) 
and 55(b)(3) without any substantive change.
    The bill makes minor technical changes, including a 
provision to reduce the minimum tax preference on certain small 
business stock to 28 percent, beginning in 2006.\12\
---------------------------------------------------------------------------
    \12\ Thus, the maximum rate under the minimum tax will be 17.92% 
(.64 times 28%).
---------------------------------------------------------------------------

                             Effective Date

    The provision applies to taxable years ending after May 6, 
1997.

2. Rollover of gain from sale of qualified stock (sec. 5(f) of the 
        bill, sec. 313 of the 1997 Act, and sec. 1045 of the Code)

                              Present Law

    The 1997 Act provided that gain from the sale of qualified 
small business stock held by an individual for more than six 
months can be ``rolled over'' tax-free to other qualified small 
business stock.

                        Explanation of Provision

    Under the bill, a partnership or an S corporation can roll 
over gain from qualified small business stock held more than 
six months if (and only if) all the interests in the 
partnership or S corporation are held by individuals or estates 
\13\ at all times during the taxable year.
---------------------------------------------------------------------------
    \13\ The term ``estate'' is intended to include both the estate of 
a decedent and the estate of an individual in bankruptcy.
---------------------------------------------------------------------------

                             Effective Date

    The provision applies to sales on or after August 5, 1997, 
the date of enactment of the 1997 Act.

3. Exclusion of gain on the sale of a principal residence owned and 
        used less than two years (sec. 5(e) of the bill, sec. 312(a) of 
        the 1997 Act, and sec. 121 of the Code)

                              Present Law

    Under present law, a taxpayer generally is able to exclude 
up to $250,000 ($500,000 if married filing a joint return) of 
gain realized on the sale or exchange of a principal residence. 
To be eligible for the exclusion, the taxpayer must have owned 
the residence and used it as a principal residence for at least 
two of the five years prior to the sale or exchange. A taxpayer 
who fails to meet these requirements by reason of a change of 
place of employment, health, or unforeseen circumstances is 
able to exclude a fraction of the taxpayer's realized gain 
equal to the fraction of the two years that the requirements 
are met.

                        Explanation of Provision

    The legislative history of the 1997 Act indicates that the 
intent of the exclusion of gain on the sale of a principal 
residence was to reduce to a small number of higher income 
taxpayers, those who would have to refer to records in 
determining income tax consequences of transactions related to 
their house.\14\ Therefore, the bill clarifies that an 
otherwise qualifying taxpayer who fails to satisfy the two-year 
ownership and use requirements is able to exclude an amount 
equal to the fraction of the $250,000 ($500,000 if married 
filing a joint return), not the fraction of the realized gain, 
which is equal to the fraction of the two years that the 
ownership and use requirements are met. For example, an 
unmarried taxpayer who owns and uses a principal residence for 
one year then sells at realized gain of $500,000 may exclude 
$125,000 of gain (one-half of $250,000) not $250,000 of gain 
(one-half of the realized gain). Similarly, an unmarried 
taxpayer who owns and uses a principal residence for one year 
then sells at a realized gain of $50,000 may exclude the entire 
$50,000 of gain because it is less than one half of $250,000. 
The exclusion is not limited to $25,000 (one-half of the 
$50,000 realized gain).
---------------------------------------------------------------------------
    \14\ See H. Rept. 105-148, p. 347.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective as if included in section 312 of 
the 1997 Act.

4. Effective date of the exclusion of gain on the sale of a principal 
        residence (sec. 5(e) of the bill, sec. 312(d)(2) of the 1997 
        Act, and sec. 121 of the Code)

                              Present law

    The exclusion for gain on sale of a principal residence 
under the 1997 Act generally applies to sales or exchanges 
occurring after May 6, 1997. A taxpayer may elect, however, to 
apply prior law to a sale or exchange (1) made before the date 
of enactment of the Act, (2) made after the date of enactment 
pursuant to a binding contract in effect on such date, or (3) 
where a replacement residence was acquired on or before the 
date of enactment (or pursuant to a binding contract in effect 
on the date of enactment) and the prior-law rollover provision 
would apply. The 1997 Act is unclear regarding transactions 
that occurred on the date of enactment.

                        Explanation of Provision

    The bill clarifies that a taxpayer may elect to apply prior 
law with respect to a sale or exchange on the date of enactment 
of section 312 of the 1997 Act (August 5, 1997).

                             Effective Date

    The provision is effective as if included in section 312 of 
the 1997 Act.

 E. Amendments to Title V of the 1997 Act Relating to Estate and Gift 
                                 Taxes

1. Clarification of effective date for indexing of generation-skipping 
        exemption (sec. 6(a) of the bill, secs. 501(d) and (f) of the 
        1997 Act, and sec. 2631(c) of the Code)

                              Present Law

    The 1997 Act provided for the indexation of the $1 million 
exemption from generation-skipping transfers effective for 
decedents dying after December 31, 1998.

                        Explanation of Provision

    The bill clarifies that the indexing of the exemption from 
generation-skipping transfers is effective with respect to all 
generation-skipping transfers (i.e., direct skips, taxable 
terminations, and taxable distributions) made after 1998.

                             Effective Date

    The provision is effective for generation-skipping 
transfers made after December 31, 1998.

2. Coordination between unified credit and family-owned business 
        exclusion (sec. 6(b)(1) of the bill, sec. 502 of the 1997 Act, 
        and sec. 2033A(a) of the Code)

                              Present Law

    The 1997 Act effectively increased the amount of lifetime 
gifts and transfers at death that are exempt from unified 
estate and gift tax from $600,000 to $1,000,000 over the period 
1997 to 2006, through increases in an individual's unified 
credit. In addition, the Act provided a limited exclusion for 
certain family-owned business interests. The exclusion for 
family-owned business interests may be taken only to the extent 
that the exclusion for family-owned business interests, plus 
the amount effectively exempted by the unified credit, does not 
exceed $1.3 million. As a result, for years after 1998, the 
maximum amount of exclusion for family-owned business interests 
is reduced by increases in the dollar amount of transfers 
effectively exempted through the unified credit.
    Because the structure of the Act increases the unified 
credit over time (until 2006) while decreasing over the same 
period the benefit of the closely-held business exclusion, the 
estate tax on estates with family-owned businesses increases 
over time until 2006. This increase in estate tax results from 
the fact that increases in the unified credit provide a benefit 
at the decedent's lowest estate tax brackets, while the 
exclusion for family-owned businesses provides a benefit at the 
decedent's highest estate tax brackets.

                        Explanation of Provision

    The bill revises the rules correlating the increase in the 
unified credit with a decrease in the lower family-owned 
business exclusion such that there is neither an increase nor a 
decrease in the total estate tax on estates holding family-
owned businesses as increases in the unified credit are phased 
in. The bill achieves this result by decreasing the amount of 
tax benefit provided by the exclusion for family-owned business 
interests in a given year (as compared to the benefit provided 
in 1998) by an amount exactly equal to the increase in the 
dollar amount of the unified credit (``the applicable credit 
amount'') in that year over the amount of unified credit 
provided in 1998 (i.e., $202,050). Thus, for example, in 2006, 
when the unified credit is $345,800, the tax benefit provided 
by the exclusion for family-owned business interests will be 
reduced by $143,750 (i.e., $345,800 minus $202,050).
    The computation is made as follows. First, one must compute 
the decrease in tentative estate tax liability (under Code 
section 2001(c)) that would result if the estate were entitled 
to an exclusion of $675,000. (This amount will vary from 
taxpayer to taxpayer, depending upon the size of the estate, 
because of different marginal estate tax rates.) This amount 
then is reduced by the amount of increase in the unified credit 
since 1998. The resulting number is the ``maximum credit 
equivalent benefit.'' The maximum qualified family-owned 
business exclusion available to the estate (``the exclusion 
limitation'') is equal to the amount of exclusion that will 
reduce the estate's tax liability by the maximum credit 
equivalent benefit.
    For example, assume that an individual dies in 2006 with an 
estate of $1.4 million, and the executor elects the application 
of the qualified family-owned business exclusion. Under Code 
section 2001(c), an estate of $1.4 million (after all 
deductions but before application of the unified credit) would 
have a tentative estate tax liability of $512,800. If this 
estate were entitled to an exclusion of $675,000, the tentative 
estate tax liability would be only $239,050 (a decrease of 
$273,750). For decedents dying in 2006, the unified credit will 
be equal to $345,800 (an increase of $143,750 over the 1998 
unified credit amount of $202,050). Thus, this estate's maximum 
credit equivalent benefit would be equal to $273,750 minus 
$143,750, or $130,000. To determine the amount of qualified 
family-owned business exclusion available to the estate in 
2006, a calculation would be made to determine the amount of 
exclusion that would provide the estate with $130,000 in tax 
savings. An estate of $1,090,244 would have a tentative tax 
liability of $382,800, which is exactly $130,000 less than the 
$512,800 tentative estate tax liability on a $1.4 million 
estate, as determined above. Thus, a maximum qualified family-
owned business exclusion of $309,756 (i.e., $1.4 million minus 
$1,090,244) would be available for a decedent dying in 2006 
with a $1.4 million estate.
    If the estate in the above example includes qualified 
family-owned business interests of at least $309,756, the 
estate may utilize the entire exclusion, and its Federal estate 
tax liability would be calculated as follows. The taxable 
estate would be equal to $1,090,244 (i.e., $1,400,000 minus 
$309,756), resulting in a tentative tax of $382,800 (based on 
the rate schedule set forth in Code sec. 2001(c)). For 
decedents dying in 2006, a unified credit of $345,800 is 
allowed. Thus, the Federal estate tax liability for this estate 
would be equal to $37,000 (i.e., $382,800 minus $345,800), less 
any other applicable credits, such as the credit for State 
death taxes.
    Under this formula, the Federal estate tax liability 
(before application of credits other than the unified credit) 
for any estate of $1.4 million that has at least $675,000 in 
qualified family-owned business interests always will be 
$37,000, regardless of the year in which the decedent dies. For 
example, if the decedent instead died in 2000, this formula 
would yield a maximum qualified family-owned business exclusion 
of $626,282, which would result in a taxable estate of 
$773,718, and a tentative tax of $257,550. After applying the 
unified credit amount that is allowed in 2000, i.e., $220,550, 
the Federal estate tax liability would be equal to $37,000, 
less any other applicable credits.

                             Effective Date

    The provision is effective for decedents dying after 
December 31, 1997.

3. Clarification of businesses eligible for family-owned business 
        exclusion (sec. 6(b)(2) of the bill, sec. 502 of the 1997 Act, 
        and sec. 2033A(b)(3) of the Code)

                              Present Law

    In order to be eligible to exclude from the gross estate a 
portion of the value of a family-owned business, the sum of (1) 
the adjusted value of family-owned business interests 
includible in the decedent's estate, and (2) the amount of 
gifts of family-owned business interests to family members of 
the decedent that are not included in the decedent's gross 
estate, must exceed 50 percent of the decedent's adjusted gross 
estate.

                        Explanation of Provision

    The bill clarifies the formula for determining the amount 
of gifts of family-owned business interests made to members of 
the decedent's family that are not otherwise includible in the 
decedent's gross estate.

                             Effective Date

    The provision is effective with respect to decedents dying 
after December 31, 1997.

4. Clarification of interest on installment payment of estate tax on 
        holding companies (sec. 6(c) of the bill, sec. 503 of the 1997 
        Act, and secs. 6166(b)(7)(A) and 6166(b)(8)(A) of the Code)

                              Present Law

    Where certain conditions are met, a decedent's estate may 
elect to pay the estate tax attributable to certain closely-
held businesses over a 14-year period. The 1997 Act provided 
for a 2-percent interest rate on the estate tax on first $1 
million in taxable value of interests in qualified closely-held 
businesses, and a rate equal to 45 percent of the regular 
deficiency rate on the amount in excess of the portion eligible 
for the 2-percent rate, but also provided that none of interest 
on the deferred payment of estate taxes would be deductible for 
income or estate tax purposes. Interests in holding companies 
and non-readily-tradeable business interests are not eligible 
for the 2-percent rate.

                        Explanation of Provision

    The bill clarifies that deferred payments of estate tax on 
holding companies and non-readily-tradable business interests 
do not qualify for the 2-percent interest rate, but instead are 
subject to a rate of 45 percent of the regular deficiency rate. 
Such interest payments are not deductible for income or estate 
tax purposes.

                             Effective Date

    The provision generally is effective for decedents dying 
after December 31, 1997.

5. Clarification on declaratory judgment jurisdiction of U.S. Tax Court 
        regarding installment payment of estate tax (sec. 6(d) of the 
        bill, sec. 505 of the 1997 Act, and sec. 7479(a) of the Code)

                              Present Law

    Where certain conditions are met, a decedent's estate may 
elect to pay estate tax attributable to certain closely-held 
businesses over a 14-year period. The 1997 Act provided that 
the U.S. Tax Court would have jurisdiction to determine whether 
the estate of a decedent qualifies for the 14-year installment 
payment of estate tax.

                        Explanation of Provision

    The bill clarifies that the jurisdiction of the U.S. Tax 
Court to determine whether an estate qualifies for installment 
payment of estate tax on closely-held businesses extends to 
determining which businesses in an estate are eligible for the 
deferral.

                             Effective Date

    The provision is effective for decedents dying after the 
date of enactment of the 1997 Act.

6. Clarification of rules governing revaluation of gifts (sec. 6(e) of 
        the bill, sec. 506 of the 1997 Act, and sec. 2504(c) of the 
        Code)

                              Present Law

    The valuation of a gift becomes final for gift tax purposes 
after the statute of limitations on any gift tax assessed or 
paid has expired. The 1997 Act extended that rule to apply for 
estate tax purposes, provided for a lengthened statute of 
limitations for gift tax purposes if certain information is not 
disclosed with the gift tax return, and provided jurisdiction 
to the U.S. Tax Court to determine the value of any gift.

                        Explanation of Provision

    The bill clarifies that in determining the amount of 
taxable gifts made in preceding calendar periods, the value of 
prior gifts is the value of such gifts as finally determined, 
even if no gift tax was assessed or paid on that gift. For this 
purpose, final determinations include, e.g., the value reported 
on the gift tax return (if not challenged by the IRS prior to 
the expiration of the statute of limitations), the value 
determined by the IRS (if not challenged through the 
declaratory judgment procedure by the taxpayer), the value 
determined by the courts, or the value agreed to by the IRS and 
the taxpayer in a settlement agreement.

                             Effective Date

    The provision is effective with respect to gifts made after 
the date of enactment of the 1997 Act.

 F. Amendments to Title VII of the 1997 Act Relating to Incentives for 
the District of Columbia (sec. 7 of the bill, sec. 701 of the 1997 Act, 
              and secs. 1400, 1400B and 1400C of the Code)

                              Present Law

Designation of D.C. Enterprise Zone

    Certain economically depressed census tracts within the 
District of Columbia are designated as the ``D.C. Enterprise 
Zone,'' within which businesses and individual residents are 
eligible for special tax incentives. The census tracts that 
compose the D.C. Enterprise Zone for purposes of the wage 
credit, expensing, and tax-exempt financing incentives include 
all census tracts that presently are part of the D.C. 
enterprise community and census tracts within the District of 
Columbia where the poverty rate is not less than 20 percent. 
The D.C. Enterprise Zone designation generally will remain in 
effect for five years for the period from January 1, 1998, 
through December 31, 2002.

Empowerment zone wage credit, expensing, and tax-exempt financing

    The following tax incentives generally are available in the 
D.C. Enterprise Zone: (1) a 20-percent wage credit for the 
first $15,000 of wages paid to D.C. residents who work in the 
D.C. Enterprise Zone; (2) an additional $20,000 of expensing 
under Code section 179 for qualified zone property; and (3) 
special tax-exempt financing for certain zone facilities.

Zero-percent capital gains rate

    A zero-percent capital gains rate applies to capital gains 
from the sale of certain qualified D.C. Zone assets held for 
more than five years. For purposes of the zero-percent capital 
gains rate, the D.C. Enterprise Zone is defined to include all 
census tracts within the District of Columbia where the poverty 
rate is not less than 10 percent. Only capital gain that is 
attributable to the 10-year period beginning December 31, 1997, 
and ending December 31, 2007, is eligible for the zero-percent 
rate.

First-time homebuyer tax credit

    First-time homebuyers of a principal residence in the 
District are eligible for a tax credit of up to $5,000 of the 
amount of the purchase price, except that the credit phases out 
for individual taxpayers with adjusted gross income between 
$70,000 and $90,000 ($110,000-$130,000 for joint filers). The 
credit is available with respect to property purchased after 
the date of enactment and before January 1, 2001.

                        Explanation of Provision

Eligible census tracts

    The bill clarifies that the determination of whether a 
census tract in the District of Columbia satisfies the 
applicable poverty criteria for inclusion in the D.C. 
Enterprise Zone for purposes of the wage credit, expensing, and 
special tax-exempt financing incentives (poverty rate of not 
less than 20 percent) or for purposes of the zero-percent 
capital gains rate (poverty rate of not less than 10 percent), 
is based on 1990 decennial census data. Thus, data from the 
2000 decennial census will not result in the expansion or other 
reconfiguration of the D.C. Enterprise Zone.

First-time homebuyer credit

    The bill clarifies that, for purposes of the first-time 
homebuyer credit, a ``first-time homebuyer'' means any 
individual if such individual (and, if married, such 
individual's spouse) did not have a present ownership interest 
in a principal residence in the District of Columbia during the 
one-year period ending on the date of the purchase of the 
principal residence to which the credit applies.
    In addition, the bill clarifies that the term ``purchase 
price'' means the adjusted basis of the principal residence on 
the date the residence is purchased. A newly constructed 
residence is treated as purchased by the taxpayer on the date 
the taxpayer first occupies such residence.
    The bill clarifies that the first-time homebuyer credit is 
a nonrefundable personal credit and provides that the first-
time homebuyer credit is claimed after the credits described in 
Code sections 25 (credit for interest on certain home 
mortgages) and 23 (adoption credit).
    Further, the bill clarifies that the first-time homebuyer 
credit is available only for property purchased after August 4, 
1997, and before January 1, 2001. Thus, the credit is available 
to first-time home purchasers who acquire title to a qualifying 
principal residence on or after August 5, 1997, and on or 
before December 31, 2000, irrespective of the date the purchase 
contract was entered into.

                             Effective Date

    The provision is effective as of August 5, 1997, the date 
of enactment of the 1997 Act.

  G. Amendments to Title IX of the 1997 Act Relating to Miscellaneous 
                               Provisions

1. Clarification of effect of certain transfers to Highway Trust Fund 
        (sec. 8(a) of the bill, sec. 901 of the 1997 Act, and sec. 9503 
        of the Code)

                              Present Law

    The 1997 Act provided for the transfer of an additional 4.3 
cents per gallon of the highway motor fuels tax revenues from 
the General Fund to the Highway Trust Fund, and provided that 
revenues transferred to the Trust Fund under this provision 
could not be used in a manner resulting in changes in direct 
spending. The 1997 Act further changed the dates by which 
certain taxes would be required to be deposited with the 
Treasury in fiscal year 1998.

                        Explanation of Provision

    The bill clarifies that the tax deposit delays included in 
the provisions affecting transfers to the Highway Trust Fund, 
like the revenue transfers themselves, do not affect direct 
spending from the Trust Fund.

                             Effective Date

    The provision is effective as if included in the 1997 Act.

2. Clarification of Mass Transit Account portions of highway motor 
        fuels taxes (sec. 8(b) of the bill, sec. 907 of the 1997 Act, 
        and sec. 9503 of the Code)

                              Present Law

    The 1997 Act provided for the transfer to the Highway Trust 
Fund of revenues attributable to a General Fund fuels tax rate 
of 4.3 cents per gallon. That Act further enacted reduced 
rates, based on energy content, for propane, liquefied natural 
gas, compressed natural gas, and methanol produced from natural 
gas. When deposited in the Highway Trust Fund, revenues from 
the taxes on each of these products are divided between the 
Trust Fund's Highway Account and the Mass Transit Account.

                        Explanation of Provision

    The bill clarifies that the Mass Transit Account portion of 
the highway motor fuels taxes generally is 2.86 cents per 
gallon and that taxes on the four fuels eligible for reduced 
rates are divided between the Highway Account and the Mass 
Transit Account in the same proportion as is the tax on 
gasoline.

                             Effective Date

    The provision is effective as if included in the 1997 Act.

3. Combined employment tax reporting demonstration project (sec. 8(c) 
        of the bill, sec. 976 of the 1997 Act, and sec. 6103(d)(5) of 
        the Code)

                              Present Law

    Traditionally, Federal tax forms are filed with the Federal 
Government and State tax forms are filed with individual 
States. This necessitates duplication of items common to both 
returns. Some States have recently been working with the IRS to 
implement combined State and Federal reporting of certain types 
of items on one form as a way of reducing the burdens on 
taxpayers. The State of Montana and the IRS have cooperatively 
developed a system to combine State and Federal employment tax 
reporting on one form. The one form would contain exclusively 
Federal data, exclusively State data, and information common to 
both: the taxpayer's name, address, TIN, and signature.
    The Internal Revenue Code prohibits disclosure of tax 
returns and return information, except to the extent 
specifically authorized by the Internal Revenue Code (sec. 
6103). Unauthorized disclosure is a felony punishable by a fine 
not exceeding $5,000 or imprisonment of not more than five 
years, or both (sec. 7213). An action for civil damages also 
may be brought for unauthorized disclosure (sec. 7431). No tax 
information may be furnished by the Internal Revenue Service 
(``IRS'') to another agency unless the other agency establishes 
procedures satisfactory to the IRS for safeguarding the tax 
information it receives (sec. 6103(p)).
    Implementation of the combined Montana-Federal employment 
tax reporting project had been hindered because the IRS 
interprets section 6103 to apply that provision's restrictions 
on disclosure to information common to both the State and 
Federal portions of the combined form, although these 
restrictions would not apply to the State with respect to the 
State's use of State-requested information if that information 
were supplied separately to both the State and the IRS.
    The 1997 Act permits implementation of a demonstration 
project to assess the feasibility and desirability of expanding 
combined reporting in the future. There are several limitations 
on the demonstration project. First, it is limited to the State 
of Montana and the IRS. Second, it is limited to employment tax 
reporting. Third, it is limited to disclosure of the name, 
address, TIN, and signature of the taxpayer, which is 
information common to both the Montana and Federal portions of 
the combined form. Fourth, it is limited to a period of five 
years.

                        Explanation of Provision

    The bill permits Montana to use this information as if it 
had collected it separately by eliminating Federal penalties 
for disclosure of this information. The bill also corrects a 
cross-reference to the provision.

                             Effective Date

    The provision is effective on the date of enactment of the 
1997 Act (August 5, 1997), and will expire on the date five 
years after the date of enactment of the 1997 Act.

 H. Amendments to Title X of the 1997 Act Relating to Revenue-Raising 
                               Provisions

1. Exception from constructive sales rules for certain debt position 
        (sec. 9(a)(1) of the bill, sec. 1001(a) of the 1997 Act, and 
        sec. 1259(b)(2) of the Code)

                              Present Law

    A taxpayer is required to recognize gain (but not loss) 
upon entering into a constructive sale of an ``appreciated 
financial position,'' which generally includes an appreciated 
position with respect to any stock, debt instrument or 
partnership interest. An exception is provided for positions 
with respect to debt instruments that have an unconditionally 
payable principal amount, that are not convertible into the 
stock of the issuer or a related person, and the interest on 
which is either fixed, payable at certain variable rates or 
based on certain interest payments on a pool of mortgages.

                        Explanation of Provision

    The bill clarifies that, to qualify for the exception for 
positions with respect to debt instruments, the position must 
either itself meet the requirements as to unconditional 
principal amount, non-convertibility and interest terms or, 
alternatively, be a hedge of a position meeting these 
requirements. A hedge for this purpose includes any position 
that reduces the taxpayer's risk of interest rate or price 
changes or currency fluctuations with respect to another 
position.

                             Effective Date

    The provision is generally effective for constructive sales 
entered into after June 8, 1997.

2. Definition of forward contract under constructive sales rules (sec. 
        9(a)(2) of the bill, sec. 1001(a) of the 1997 Act, and sec. 
        1259(d)(1) of the Code)

                              Present Law

    A constructive sale of an appreciated financial position 
generally results when the taxpayer enters into a forward 
contract to deliver the same or substantially identical 
property. A forward contract for this purpose is defined as a 
contract that provides for delivery of a substantially fixed 
amount of property at a substantially fixed price.

                        Explanation of Provision

    The bill clarifies that the definition of a forward 
contract includes a contract that provides for cash settlement 
with respect to a substantially fixed amount of property at a 
substantially fixed price.

                             Effective Date

    The provision is generally effective for constructive sales 
entered into after June 8, 1997.

3. Treatment of mark-to-market gains of electing traders (sec. 9(a)(3) 
        of the bill, sec. 1001(b) of the 1997 Act, and sec. 
        475(f)(1)(D) of the Code)

                              Present Law

    Securities and commodities traders may elect application of 
the mark-to-market accounting rules. Gain or loss recognized by 
an electing taxpayer under these rules is treated as ordinary 
gain or loss.
    Under the Self-Employment Contributions Act (``SECA''), a 
tax is imposed on an individual's net earnings from self-
employment (``NESE''). Gain or loss from the sale or exchange 
of a capital asset is excluded from NESE.
    A publicly-traded partnership generally is treated as a 
corporation for Federal tax purposes. An exception to this rule 
applies if 90 percent or more of the partnership's gross income 
consists of passive-type income, which includes gain from the 
sale or disposition of a capital asset.

                        Explanation of Provision

    The bill clarifies that gain or loss of a securities or 
commodities trader that is treated as ordinary solely by reason 
of election of mark-to-market treatment is not treated as other 
than gain or loss from a capital asset for purposes of 
determining NESE for SECA tax purposes or for purposes of 
determining whether the passive-type income exception to the 
publicly-traded partnership rules is met.

                             Effective Date

    The provision applies to taxable years of electing 
securities and commodities traders ending after the date of 
enactment of the 1997 Act.

4. Special effective date for constructive sale rules (sec. 9(a)(4) of 
        the bill, sec. 1001(d) of the 1997 Act, and sec. 1259 of the 
        Code)

                              Present Law

    The constructive sales rules contain a special effective 
date provision for decedents dying after June 8, 1997, if (1) a 
constructive sale of an appreciated financial position occurred 
before such date, (2) the transaction remains open for not less 
than two years, (3) the transaction remains open at any time 
during the three years prior to the decedent's death, and (4) 
the transaction is not closed within the 30-day period 
beginning on the date of enactment of the 1997 Act. If the 
requirements of the special effective date provision are met, 
both the appreciated financial position and the transaction 
resulting in the constructive sale are generally treated as 
property constituting rights to receive income in respect of a 
decedent under section 691. However, gain with respect to a 
position in a constructive sale transaction that accrues after 
the transaction is closed is not included in income in respect 
of a decedent.

                        Explanation of Provision

    The bill clarifies the special effective date rule to 
provide that the rule does not apply if the constructive sale 
transaction is closed at any time prior to the end of the 30th 
day after the date of enactment of the 1997 Act.

                             Effective Date

    The provision is effective for decedents dying after June 
8, 1997.

5. Treatment of certain corporate distributions (sec. 9(b) of the bill, 
        sec. 1012 of the 1997 Act, and secs. 355(e)(3)(A)(iv) and 
        358(c) of the Code)

                              Present Law

    The 1997 Act (sec. 1012(a)) requires a distributing 
corporation (``distributing'') to recognize corporate level 
gain on the distribution of stock of a controlled corporation 
(``controlled'') under section 355 of the Code if, pursuant to 
a plan or series of related transactions, one or more persons 
acquire a 50-percent or greater interest (defined as 50 percent 
or more of the voting power or value of the stock) of either 
the distributing or controlled corporation (Code sec. 355(e)). 
Certain transactions are excepted from the definition of 
acquisition for this purpose, including, under section 
355(e)(3)(A)(iv), the acquisition by a person of stock in a 
corporation if shareholders owning directly or indirectly stock 
possessing more than 50 percent of the voting power and more 
than 50 percent of the value of the stock in distributing or 
any controlled corporation before such acquisition own directly 
or indirectly stock possessing such vote and value in such 
distributing or controlled corporation after such 
acquisition.\15\

    \15\This exception (as certain other exceptions) does not apply if 
the stock held before the acquisition was acquired pursuant to a plan 
(or series of related transactions) to acquire a 50-percent or greater 
interest in the distributing or a controlled corporation.
---------------------------------------------------------------------------
    The 1997 Act (sec. 1012(b)(1)) also provides that, except 
as provided in regulations, section 355 shall not apply to the 
distribution of stock from one member of an affiliated group of 
corporations (as defined in section 1504(a)) to another member 
of such group (an intragroup spin-off) if such distribution is 
part of a such a plan or series of related transactions 
pursuant to which one or more persons acquire stock 
representing a 50-percent or greater interest in a distributing 
or controlled corporation, determined after the application of 
the rules of section 355(e).
    In addition, the 1997 Act (sec. 1012(c)) provides that in 
the case of any distribution of stock of one member of an 
affiliated group of corporations to another member under 
section 355, the Treasury Department has regulatory authority 
under section 358(c) to provide adjustments to the basis of any 
stock in a corporation which is a member of such group, to 
reflect appropriately the proper treatment of such 
distribution.
    The effective date (Act section 1012(d)(1)) states that the 
forgoing provisions of the Act apply to distributions after 
April 16, 1997, pursuant to a plan (or series of related 
transactions) which involves an acquisition occurring after 
such date (unless certain transition provisions apply).

                        Explanation of Provision

Acquisition of a 50-percent or greater interest

    The bill clarifies that the acquisitions described in Code 
section 355(e)(3)(A) are disregarded in determining whether 
there has been an acquisition of a 50-percent or greater 
interest in a corporation. However, other transactions that are 
part of a plan or series of related transactions could result 
in an acquisition of a 50-percent or greater interest.
    In the case of acquisitions under section 355(e)(3)(A)(iv), 
the provision clarifies that the acquisition of stock in the 
distributing corporation or any controlled corporation is 
disregarded to the extent that the percentage of stock owned 
directly or indirectly in such corporation by each person 
owning stock in such corporation immediately before the 
acquisition does not decrease.
    Example: Shareholder A owns 10 percent of the vote and 
value of the stock of corporation D (which owns all of 
corporation C). There are nine other equal shareholders of D. A 
also owns 100 percent of the vote and value of the stock of 
unrelated corporation P. D distributes C to all the 
shareholders of D. Thereafter, pursuant to a plan or series of 
related transactions, D (worth 100x) merges with corporation P 
(worth 900x). After the merger, each of the former shareholders 
of corporation D owns stock of the merged entity reflecting the 
vote and value attributable to that shareholder's respective 10 
percent former stock ownership of D. Each of the former 
shareholders of D owns 1 percent of the stock of the merged 
corporation, except that shareholder A (who owned 100 percent 
of corporation P and 10 percent of corporation D before the 
merger) now owns 91 percent of the stock of the merged 
corporation. In determining whether a 50-percent or greater 
interest in D has been acquired, the interest of each of the 
continuing shareholders is disregarded only to the extent there 
has been no decrease in such shareholder's direct or indirect 
ownership. Thus, the 10 percent interest of A, and the 1 
percent interest of each of the nine other former shareholders 
of D, is not counted. The remaining 81 percent ownership of the 
merged corporation, representing a decrease of nine percent in 
the interests of each of the nine former shareholders other 
than A, is counted in determining the extent of an acquisition. 
Therefore, a 50-percent or greater interest in D has been 
acquired.

Treasury regulatory authority

    The bill also clarifies that the regulatory authority of 
the Treasury Department under section 358(c) applies to 
distributions after April 16, 1997, without regard to whether a 
distribution involves a plan (or series of related 
transactions) which involves an acquisition. As stated in the 
Statement of Managers to the 1997 Act, with respect to the 
Treasury Department regulatory authority under section 358(c) 
as applied to intragroup spin-off transactions that are not 
part of a plan or series of related transactions that involve 
an acquisition of a 50-percent of greater interest under new 
section 355(f), it is expected that any Treasury regulations 
will be applied prospectively, except in cases to prevent 
abuse.

                             Effective Date

    The provision generally is effective for distributions 
after April 16, 1997.

6. Certain preferred stock treated as ``boot''--statute of limitations 
        (sec. 9(c)(1) of the bill, sec. 1014 of the 1997 Act, and sec. 
        354(a) of the Code).

                              Present law

    Under the 1997 Act, certain preferred stock received in 
otherwise tax-free transactions is treated as ``other 
property.'' Exchanges of stock in certain recapitalizations of 
family-owned corporations are excepted from this rule. A 
family-owned corporation is defined as any corporation if at 
least 50 percent of the total voting power and value of the 
stock of such corporation is owned by the same family for five 
years preceding the recapitalization. In addition, a 
recapitalization does not qualify for the exception if the same 
family does not own 50 percent of the total voting power and 
value of the stock throughout the three-year period following 
the recapitalization.

                        Explanation of Provision

    Under the bill, the statutory period for the assessment of 
any deficiency attributable to a corporation failing to be a 
family-owned corporation shall not expire before the expiration 
of three years after the date the Secretary of the Treasury is 
notified by the corporation (in such manner as the Secretary 
may prescribe) of such failure, and such deficiency may be 
assessed before the expiration of such three-year period 
notwithstanding the provisions of any other law or rule of law 
which would otherwise prevent such assessment.

                             Effective Date

    The provision applies to transactions after June 8, 1997.

7. Certain preferred stock treated as ``boot''--treatment of transferor 
        (sec. 9(c)(2) of the bill, sec. 1014 of the 1997 Act, and sec. 
        351(g) of the Code)

                              Present Law

    The 1997 Act amended section 351 of the Code to provide 
that in the case of a person who transfers property to a 
controlled corporation and receives nonqualified preferred 
stock, section 351(b) will apply to such person. Section 351(b) 
provides that if section 351(a) of the Code would apply to an 
exchange but for the fact that there is received, in addition 
to stockpermitted to be received under section 351(a), other 
property or money, then gain but no loss to such recipient 
shall be recognized. The Statement of Managers to the 1997 Act 
states that if nonqualified preferred stock is received, gain 
but not loss shall be recognized.

                        Explanation of Provision

    The bill clarifies that section 351(b) applies to a 
transferor who transfers property in a section 351 exchange and 
receives nonqualified preferred stock in addition to stock that 
is not treated as ``other property'' under that section. Thus, 
if a transferor received only nonqualified preferred stock but 
the transaction in the aggregate otherwise qualified as a 
section 351 exchange, such a transferor would recognize loss 
and the basis of the nonqualified preferred stock and of the 
property in the hands of the transferee corporation would 
reflect the transaction in the same manner as if that 
particular transferor had received solely ``other property'' of 
any other type. The provision does not override the application 
of section 267 or any other provision that would disallow or 
defer the recognition of a loss. As under the 1997 Act, the 
nonqualified preferred stock continues to be treated as stock 
received by a transferor for purposes of qualification of a 
transaction under section 351(a), unless and until regulations 
may provide otherwise.

                             Effective Date

    The provision applies to transactions after June 8, 1997.

8. Establish IRS continuous levy and improve debt collection (sec. 9(d) 
        of the bill, sec. 1024 of the 1997 Act, and sec. 6331 of the 
        Code)

                              Present Law

    If any person is liable for any internal revenue tax and 
does not pay it within 10 days after notice and demand by the 
IRS, the IRS may then collect the tax by levy upon all property 
and rights to property belonging to the person, unless there is 
an explicit statutory restriction on doing so. A levy is the 
seizure of the person's property or rights to property. A levy 
on salary and wages is continuous from the date it is first 
made until the date it is fully paid or becomes unenforceable.
    The 1997 Act provides that a continuous levy is also 
applicable to non-means tested recurring Federal payments and 
specified wage replacement payments.

                        Explanation of Provision

    The bill clarifies that the IRS must approve the use of a 
continuous levy before it may take effect.

                             Effective Date

    The provision is effective for levies issued after the date 
of enactment of the 1997 Act (August 5, 1997).

9. Clarification regarding aviation gasoline excise tax (sec. 9(e) of 
        the bill, sec. 1031 of the 1997 Act, and sec. 6421(f) of the 
        Code)

                              Present Law

    Before enactment of the 1997 Act, aviation gasoline was 
subject to a 19.3-cents-per-gallon tax rate, with 15 cents per 
gallon being deposited in the Airport and Airway Trust Fund and 
4.3 cents per gallon being retained in the General Fund. The 
1997 Act extended the 15-cents-per-gallon rate for 10 years, 
through September 30, 2007, and expanded deposits to the Trust 
Fund to include revenues from the 4.3-cents-per-gallon rate. 
The tax does not apply to fuel used in flight segments outside 
the United States or to flight segments from the United States 
to foreign countries.

                        Explanation of Provision

    The bill clarifies the application of the gasoline tax 
refund provisions to aviation gasoline used in flight segments 
outside the United States and to flight segments from the 
United States to foreign countries.

                             Effective Date

    The provision is effective as if included in the 1997 Act.

10. Clarification of requirement that registered fuel terminals offer 
        dyed fuel (sec. 9(f) of the bill, sec. 1032 of the 1997 Act, 
        and sec. 4101 of the Code)

                              Present Law

    The 1997 Act provides that fuel terminals are eligible to 
register to handle non-tax-paid diesel fuel and kerosene only 
if the terminal operator offers both undyed (taxable) and dyed 
(nontaxable) fuel.

                        Explanation of Provision

    The bill clarifies that the Code requires terminals 
eligible to handle non-tax-paid diesel to offer dyed diesel 
fuel and terminals eligible to handle non-tax-paid kerosene 
(including diesel fuel #1 and kerosene-type aviation fuel) to 
offer dyed kerosene. The provision does not require that a 
terminal offer for sale kerosene as a condition of receiving 
diesel fuel on a non-tax-paid basis. Similarly, the provision 
does not require terminals that sell only kerosene to offer 
diesel fuel as a condition of receiving non-tax-paid kerosene.

                             Effective Date

    The provision is effective as if included in the 1997 Act.

11. Clarification of provision expanding the limitations on 
        deductibility of premiums and interest with respect to life 
        insurance, endowment and annuity contracts (sec. 9(i) of the 
        bill, sec. 1084 of the 1997 Act, and sec. 264 of the Code)

                              Present Law

Master contracts

    The 1997 Act provided limitations on the deductibility of 
interest and premiums with respect to life insurance, endowment 
and annuity contracts. Under the pro rata interest disallowance 
provision added by the Act, an exception is provided for any 
policy or contract owned by an entity engaged in a trade or 
business, covering an individual who is an employee, officer or 
director of the trade or business at the time first covered. 
The exception applies to any policy or contract owned by an 
entity engaged in a trade or business, which covers one 
individual who (at the time first insured under the policy or 
contract) is (1) a 20-percent owner of the entity, or (2) an 
individual (who is not a 20-percent owner) who is an officer, 
director or employee of the trade or business.\16\ The 
provision is silent as to the treatment of coverage of such an 
individual under a master contract.
---------------------------------------------------------------------------
    \16\ The exception also applies in the case of a joint-life policy 
or contract under which the sole insureds are a 20-percent owner and 
the spouse of the 20-percent owner. A joint-life contract under which 
the sole insured are a 20-percent owner and his or her spouse is the 
only type of policy or contract with more than one insured that comes 
within the exception.
---------------------------------------------------------------------------

Reporting

    The provision does not apply to any policy or contract held 
by a natural person; however, if a trade or business is 
directly or indirectly the beneficiary under any policy or 
contract, the policy or contract is treated as held by the 
trade or business and not by a natural person. In addition, the 
provision includes a reporting requirement. Specifically, the 
provision provides that the Treasury Secretary shall require 
such reporting from policyholders and issuers as is necessary 
to carry out the rule applicable when the trade or business is 
directly or indirectly the beneficiary under any policy or 
contract held by a natural person. Any report required under 
this reporting requirement is treated as a statement referred 
to in Code section 6724(d)(1) (relating to information 
returns). The provision does not specifically refer to Code 
section 6724(d)(2) (relating to payee statements).

                       Explanation of Provisions

Master contracts

    The bill clarifies that if coverage for each insured 
individual under a master contract is treated as a separate 
contract for purposes of sections 817(h), 7702, and 7702A of 
the Code, then coverage for each such insured individual is 
treated as a separate contract, for purposes of the exception 
to the pro rata interest disallowance rule for a policy or 
contract covering an individual who is a 20-percent owner, 
employee, officer or director of the trade or business at the 
time first covered. A master contract does not include any 
contract if the contract (or any insurance coverage provided 
under the contract) is a group life insurance contract within 
the meaning of Code section 848(e)(2). No inference is intended 
that coverage provided under a master contract, for each such 
insured individual, is not treated as a separate contract for 
each such individual for other purposes under present law.

Reporting

    The bill clarifies that the required reporting to the 
Treasury Secretary is an information return (within meaning of 
sec. 6724(d)(1)), and any reporting required to be made to any 
other person is a payee statement (within the meaning of sec. 
6724(d)(2)). Thus, the $50-per-report penalty imposed under 
sections 6722 and 6723 of the Code for failure to file or 
provide such an information return or payee statement applies. 
It is clarified that the Treasury Secretary mayrequire 
reporting by the issuer or policyholder of any relevant information 
either by regulations or by any other appropriate guidance (including 
but not limited to publication of a form).

                             Effective Date

    The provision is effective as if included in the 1997 Act.

12. Clarification to the definition of modified adjusted gross income 
        for purposes of the earned income credit phaseout (sec. 9(j) of 
        the bill, sec. 1085(d) of the 1997 Act, and sec. 32(c) of the 
        Code)

                              Present Law

    The earned income credit (``EIC'') is phased out above 
certain income levels. For individuals with earned income (or 
modified adjusted gross income (``modified AGI''), if greater) 
in excess of the beginning of the phaseout range, the maximum 
credit amount is reduced by the phaseout rate multiplied by the 
amount of earned income (or modified AGI, if greater) in excess 
of the beginning of the phaseout range. For individuals with 
earned income (or modified AGI, if greater) in excess of the 
end of the phaseout range, no credit is allowed. The definition 
of modified AGI used for the phase out of the earned income 
credit is the sum of: (1) AGI with certain losses disregarded, 
and (2) certain nontaxable amounts not generally included in 
AGI. The losses disregarded are: (1) net capital losses (if 
greater than zero); (2) net losses from trusts and estates; (3) 
net losses from nonbusiness rents and royalties; (4) 75 percent 
of the net losses from business, computed separately with 
respect to sole proprietorships (other than in farming), sole 
proprietorships in farming, and other businesses.\17\ The 
nontaxable amounts included in modified AGI which are generally 
not included in AGI are: (1) tax-exempt interest; and (2) 
nontaxable distributions from pensions, annuities, and 
individual retirement arrangements (but only if not rolled over 
into similar vehicles during the applicable rollover period).
---------------------------------------------------------------------------
    \17\ The 1997 Act increased the amount of net losses from business, 
computed separately with respect to sole proprietorships (other than 
farming), sole proprietorships in farming, and other businesses 
disregarded from 50 percent to 75 percent.
---------------------------------------------------------------------------

                        Explanation of Provision

    The bill clarifies that the two nontaxable amounts that are 
added to adjusted gross income to compute modified AGI for 
purposes of the EIC phaseout are additions to adjusted gross 
income and not disregarded losses.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1997.

     I. Amendments to Title XI of the 1997 Act Relating to Foreign 
Provisions (sec. 10(b) of the bill, sec. 1121 of the 1997 Act, and sec. 
                           1298 of the Code)

                              Present Law

    Special attribution rules apply to the extent that the 
effect is to treat stock of a passive foreign investment 
company (``PFIC'') as owned by a U.S. person. In general, if 50 
percent or more in value of the stock of a corporation is owned 
(directly or indirectly) by or for any person, such person is 
considered as owning a proportionate part of the stock owned 
directly or indirectly by or for such corporation, determined 
based on the person's proportionate interest in the value of 
such corporation's stock. However, this 50-percent limitation 
does not apply in the case of a corporation that is a PFIC. 
Accordingly, a person that is a shareholder of a PFIC is 
considered as owning a proportionate part of the stock owned 
directly or indirectly by or for such PFIC, without regard to 
whether such shareholder owns at least 50 percent of the PFIC's 
stock by value.
    A corporation is not treated as a PFIC with respect to a 
shareholder during the qualified portion of the shareholder's 
holding period for the stock of such corporation. The qualified 
portion of the shareholder's holding period generally is the 
portion of such period which is after the effective date of the 
1997 Act and during which the shareholder is a United States 
shareholder (as defined in sec. 951(b)) and the corporation is 
a controlled foreign corporation.
    If a corporation is not treated as a PFIC with respect to a 
shareholder for the qualified portion of such shareholder's 
holding period, it is unclear whether the attribution rules 
that apply with respect to stock owned by or for such 
corporation apply without regard to the requirement that the 
shareholder own 50 percent or more of the corporation's stock.

                        Explanation of Provision

    The bill clarifies that the attribution rules apply without 
regard to the provision that treats a corporation as a non-PFIC 
with respect to a shareholder for the qualified portion of the 
shareholder's holding period. Accordingly, stock owned directly 
or indirectly by or for a corporation that is not treated as a 
PFIC for the qualified portion of the shareholder's holding 
period nevertheless is attributed to such shareholder, 
regardless of the shareholder's ownership percentage of such 
corporation.

                             Effective Date

    The provision is effective for taxable years of U.S. 
persons beginning after December 31, 1997 and taxable years of 
foreign corporations ending with or within such taxable years 
of U.S. persons.

 J. Amendments to Title XII of the 1997 Act Relating to Simplification 
                               Provisions

  1. Travel expenses of Federal employees participating in a Federal 
 criminal investigation (sec. 11(a) of the bill, sec. 1204 of the 1997 
                     Act, and sec. 162 of the Code)

                              Present Law

    Unreimbursed ordinary and necessary travel expenses paid or 
incurred by an individual in connection with temporary 
employment away from home (e.g., transportation costs and the 
cost of meals and lodging) are generally deductible, subject to 
the two-percent floor on miscellaneous itemized deductions. 
Travel expenses paid or incurred in connection with indefinite 
employment away from home, however, are not deductible. A 
taxpayer's employment away from home in a single location is 
indefinite rather than temporary if it lasts for one year or 
more; thus, no deduction is permitted for travel expenses paid 
or incurred in connection with such employment (sec. 162(a)). 
If a taxpayer's employment away from home in a single location 
lasts for less than one year, whether such employment is 
temporary or indefinite is determined on the basis of the facts 
and circumstances.
    The 1997 Act provided that the one-year limitation with 
respect to deductibility of expenses while temporarily away 
from home does not include any period during which a Federal 
employee is certified by the Attorney General (or the Attorney 
General's designee) as traveling on behalf of the Federal 
Government in a temporary duty status to investigate or provide 
support services to the investigation of a Federal crime. Thus, 
expenses for these individuals during these periods are fully 
deductible, regardless of the length of the period for which 
certification is given (provided that the other requirements 
for deductibility are satisfied).

                        Explanation of Provision

    The bill clarifies that prosecuting a Federal crime or 
providing support services to the prosecution of a Federal 
crime is considered part of investigating a Federal crime.

                             Effective Date

    The provision is effective for amounts paid or incurred 
with respect to taxable years ending after the date of 
enactment of the 1997 Act.

      2. Effective date for provisions relating to electing large 
   partnerships, partnership returns required on magnetic media, and 
 treatment of partnership items of individual retirement arrangements 
         (sec. 11(c) of the bill and sec. 1226 of the 1997 Act)

                              Present Law

    Rules for simplified flowthrough and simplified audit 
procedures for electing large partnerships, as well as a March 
15 due date for furnishing information to partners of an 
electing large partnership, were added to present law by the 
1997 Act. The 1997 Act also added a rule providing that 
partnership returns are required on magnetic media, and 
modified the treatment of partnership items of individual 
retirement arrangements. The 1997 Act statement of managers 
provided that these provisions apply to partnership taxable 
years beginning after December 31, 1997. The statute provided 
that the rules for simplified flowthrough for electing large 
partnerships apply to partnership taxable years beginning after 
December 31, 1997 (Act sec. 1221(c)), although the statute also 
provided that all the provisions apply to partnership taxable 
years ending on or after December 31, 1997 (Act sec. 1226).

                        Explanation of Provision

    The bill provides that these provisions apply to 
partnership taxable years beginning after December 31, 1997.

                             Effective Date

    The provision is effective as if enacted in the 1997 Act.

   K. Amendments to Title XVI of the 1997 Act Relating to Technical 
                              Corrections

1. Application of requirements for SIMPLE IRAs in the case of mergers 
        and acquisitions (sec. 15(a)(1) of the bill, sec. 1601(d)(1) of 
        the 1997 Act, and sec. 408(p)(2) of the Code)

Present Law

    If an employer maintains a qualified plan and a SIMPLE IRA 
in the same year due to an acquisition, disposition or similar 
transaction the SIMPLE IRA is treated as a qualified salary 
reduction arrangement for the year of the transaction and the 
following calendar year provided rules similar to the special 
coverage rules of section 410(b)(6)(C) apply. There is a 
similar provision with respect to an employer who, because of 
an acquisition, disposition or similar transaction, fails to be 
an eligible employer because such employer employs more than 
100 employees. In this situation, the employer is treated as an 
eligible employer for two years following the transaction 
provided rules similar to the coverage rules of section 
410(b)(6)(C)(i) apply.

                        Explanation of Provision

    The bill conforms the treatment applicable to SIMPLE IRAs 
upon acquisition, disposition or similar transaction for 
purposes of (1) the 100 employee limit, (2) the exclusive plan 
requirement, and (3) the coverage rules for participation. In 
the event of such a transaction, the employer will be treated 
as an eligible employer and the arrangement will be treated as 
a qualified salary reduction arrangement for the year of the 
transaction and the two following years, provided rules similar 
to the rules of section 410(b)(6)(C)(i)(II) are satisfied and 
the arrangement would satisfy the requirements to be a 
qualified salary reduction arrangement after the transaction if 
the trade or business that maintained the arrangement prior to 
the transaction had remained a separate employer.

                             Effective Date

    The provision is effective as if included in the Small 
Business Job Protection Act of 1996.

2. Treatment of Indian tribal governments under section 403(b) (sec. 
        15(a)(2) of the bill, sec. 1601(d)(4)(a) of the 1997 Act, and 
        sec. 403(b) of the Code)

                              Present Law

    Any 403(b) annuity contract purchased in a plan year 
beginning before January 1, 1995, by an Indian tribal 
government is treated as purchased by an entity permitted to 
maintain a tax-sheltered annuity plan. Such contracts may be 
rolled over into a section 401(k) plan maintained by the Indian 
tribal government in accordance with the rollover rules of 
section 403(b)(8). An employee participating in a 403(b) 
annuity contract of the Indian tribal government may roll over 
amounts from such contract to a section 401(k) plan maintained 
by the Indian tribal government whether or not the annuity 
contract is terminated.

                        Explanation of Provision

    The bill clarifies that an employee participating in a 
403(b)(7) custodial account of the Indian tribal government may 
roll over amounts from such account to a section 401(k) plan 
maintained by the Indian tribal government.

                             Effective Date

    The provision is effective as if included in the Small 
Business Job Protection Act of 1996.

             TECHNICAL CORRECTIONS TO OTHER TAX LEGISLATION

A. Allow Deduction for Unused Employer Social Security Credit (sec. 16 
  of the bill, sec. 13443 of the Omnibus Budget Reconcilement Act of 
                    1993, and sec. 196 of the Code)

                              Present Law

    The general business credit (``GBC'') consists of various 
individual tax credits (including the employer social security 
credit of Code section 45B) allowed with respect to certain 
qualified expenditures and activities. In general, the various 
individual tax credits contain provisions that prohibit 
``double benefits,'' either by denying deductions in the case 
of expenditure-related credits or by requiring income 
inclusions in the case of activity-related credits. Unused 
credits may be carried back one year and carried forward 20 
years. Section 196 allows a deduction to the extent that 
certain portions of the GBC expire unused after the end of the 
carryforward period. Section 196 does not allow a deduction to 
the extent that the portion of the GBC that expires unused 
after the end of the carryforward period relates to the 
employer social security credit.

                        Explanation of Provision

    The bill allows a deduction to the extent that the portion 
of the GBC relating to the employer social security credit 
expires unused after the end of the carryforward period.

                             Effective Date

    The provision is effective as if included in the Omnibus 
Budget Reconciliation Act of 1993.

B. Treatment of Certain Stapled REITs (sec. 17 of the bill, sec. 136(c) 
       of the Tax Reform Act of 1984, and sec. 269B of the Code)

                              Present Law

    Only one level of tax generally applies to an entity that 
qualifies as a real estate investment trust (a ``REIT''). 
Section 269B(a)(3), as added by the Tax Reform Act of 1984, 
provides that in order to determine whether an entity qualifies 
as a REIT, all stapled entities are treated as one entity. 
Section 269B(a)(3) does not apply to entities that were stapled 
entities on June 30, 1983.

                        Explanation of Provision

    The bill clarifies that the grandfather rule provided by 
the Tax Reform Act of 1984 for entities stapled on June 30, 
1983, applies to each period after June 30, 1983, during which 
such entities are stapled entities, whether or not such 
entities were stapled entities for all periods after June 30, 
1983. No inference is intended as to the application of any 
aspect of any grandfather rule by reason of the bill.

                             Effective Date

    The provision is effective as if included in the Tax Reform 
Act of 1984.

                       III. VOTE OF THE COMMITTEE

    In compliance with clause 2(l)(2)(B) of Rule XI of the 
Rules of the House of Representatives, the following statement 
is made concerning the vote on the motion to report the bill. 
The bill (H.R. 2645) was ordered favorably reported, without 
amendment, by voice vote on October 9, 1997, with a quorum 
present.

                     IV. BUDGET EFFECTS OF THE BILL

                         A. Committee Estimates

    In compliance with clause 7(a) of Rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the estimated budget effects of the bill as 
reported.
    The bill, as reported, is estimated to have no effect on 
the budget.

                B. Budget Authority and Tax Expenditures

Budget authority

    In compliance with subdivision (B) of clause 2(l)(3) of 
Rule XI of the Rules of the House of Representatives, the 
Committee states that the provisions of the bill as reported 
involve no new or increased budget authority.

Tax expenditures

    In compliance with subdivision (B) of clause 2(l)(3) of 
Rule XI of the Rules of the House of Representatives, the 
Committee states that the provisions of the bill as reported 
involve no new or increased tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with subdivision (C) of clause 2(l)(3) of 
Rule XI of the Rules of the House of Representatives, requiring 
cost estimate prepared by the Congressional Budget Office, the 
Committee advises that the Congressional Budget Office has 
submitted the following statement on this bill.

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 17, 1997.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 2645, the Tax Technical Corrections Act of 1997, 
as ordered reported by the House Committee on Ways and Means on 
October 9, 1997. CBO estimates that this bill would cause no 
change in federal government receipts. The proposed legislation 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act of 1995, and would 
impose no direct costs on state, local, or tribal governments. 
Because enacting H.R. 2645 could affect receipts, pay-as-you-go 
procedures would apply to the bill.
    H.R. 2645 would make technical corrections related to the 
Taxpayer Relief Act of 1997. None of the provisions would have 
a significant impact on the budget.
    Section 252 of the Balanced Budget and Emergency Deficit 
Control Act of 1985 sets up pay-as-you-go procedures for 
legislation affecting direct spending or receipts. The 
projected changes in direct spending through 2007 are shown in 
the following table. For purposes of enforcing pay-as-you-go 
procedures, however, only the effects in the budget year and 
the succeeding four year as counted.

                                          PAY-AS-YOU-GO CONSIDERATIONS                                          
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                             1998   1999   2000   2001   2002   2003   2004   2005   2006   2007
----------------------------------------------------------------------------------------------------------------
Changes in outlays........................  (\1\)  (\1\)  (\1\)  (\1\)  (\1\)  (\1\)  (\1\)  (\1\)  (\1\)  (\1\)
Changes in receipts.......................      0      0      0      0      0      0      0      0      0      0
----------------------------------------------------------------------------------------------------------------
\1\ Not Applicable.                                                                                             

    If you wish further details, please feel free to contact me 
or your staff may wish to contact Alyssa Trzeszkowski.
            Sincerely,
                                         June E. O'Neill, Director.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to subdivision (A) of clause 2(l)(3) of Rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee advises that it was the 
result of the Committee's oversight activities concerning a 
technical review of provisions in the Taxpayer Relief Act of 
1997 and other tax legislation that the Committee concluded 
that it is appropriate to enact the provisions contained in the 
bill as reported.

    B. Summary of Findings and Recommendations of the Committee on 
                    Government Reform and Oversight

    With respect to subdivision (D) of clause 2(l)(3) of Rule 
XI of the Rules of the House of Representatives, the Committee 
advises that no oversight findings or recommendations have been 
submitted to this Committee by the Committee on Government 
Reform and Oversight with respect to the provisions contained 
in the bill.

                 C. Constitutional Authority Statement

    With respect to clause 2(l)(4) of Rule XI of the Rules of 
the House of Representatives (relating to Constitutional 
Authority), the Committee states that the Committee's action in 
reporting this bill is derived from Article I of the 
Constitution, Section 7 (``All bills for raising revenue shall 
originate in the House of Representatives'') and Section 8 
(``The Congress shall have power to lay and collect taxes, 
duties, imposts and excises, to pay the debts . . . of the 
United States''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the provisions of the 
bill do not impose any new Federal mandate on the private 
sector nor any new Federal intergovernmental mandate. Thus, the 
provisions of the bill do not affect the competitive balance 
between the private sector and State, local, and tribal 
governments.

                 E. Applicability of House Rule XXI5(c)

    Rule XXI5(c) of the Rules of the House of Representatives 
provides, in part, that ``No bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase shall be considered as passed or agreed to unless 
so determined by a vote of not less than three-fifths of the 
Members.'' The Committee has carefully reviewed the provisions 
of the bill, and states that the provisions of the bill do not 
involve any Federal income tax rate increase within the meaning 
of the rule.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, in order to expedite the 
business of the House of Representatives, it is appropriate to 
forgo the requirement of clause 3 of Rule XIII of the Rules of 
the House of Representatives (relating to showing changes in 
existing law made by the bill as reported).

                                
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